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Beginning in 1921, Lenin's Soviet government made industrial modernization a priority. But it was under Stalin that the system of central planning was fully developed and the industrialization of the Russian Republic reached its peak. Throughout the Stalin period, investment resources were directed into heavy manufacturing at the expense of consumer or light industry.

During the later Soviet period, economic reformers such as Nikita Khrushchev attempted to shift some resources to the consumer industries, but the emphasis eventually shifted back to heavy and military industries. This emphasis was especially strong while the Soviet Union was building its military base during the Cold War. In the 1970s, manufacturing productivity declined. As part of his perestroika program in the late 1980s, Gorbachev redirected resources to consumer goods, but the effort proved insufficient to forestall the decay of the manufacturing sector.

In the 1990s, Russia urgently needed a revival of the manufacturing sector to provide employment and steer the restructuring of industrial priorities away from the impractical Soviet emphasis on subsidized heavy industry and the military-industrial complex (MIC). Although a substantial share of Russia's MIC enterprises underwent full or partial conversion to civilian production and most manufacturers were partially or fully privatized, manufacturing output continued a general decline in the mid-1990s (see table 18, Appendix). This trend had slowed by 1995, when the decrease in total industrial production was 4 percent compared with 1994; the 1994 total had been 23 percent below that of 1993.

Ferrous Metallurgy

The Soviet Union's ferrous metallurgy industry was a showpiece of centralized planning of heavy industry. The fast-growing industry, vital in supplying other heavy industries with semifinished inputs, led the world in output in the 1970s and the 1980s. Beginning in the mid-1980s, however, ferrous metallurgy did not keep pace with the demands of domestic industry and foreign markets for more sophisticated and stronger metal materials. Many older plants with outmoded technology remained in full production; Soviet plans called for refitting the industry in the 1990s, but Russia's resources have not been sufficient for such a massive project.

In 1994 the ferrous and nonferrous metallurgical industries accounted for about 16 percent of industrial output. In 1996 more than 80 percent of Russia's steel output came from eight plants, although about 100 plants were in operation. Among the industry's most important products are pipe, pig iron, smelted steel, finished rolled metal, and shaped section steel. The four largest steel enterprises are the Novolipetsk and Cherepovets metallurgical plants, located southeast and north of Moscow, respectively, and the Magnitogorsk and Nizhniy Tagil metallurgical combines, located in the Ural industrial region. In 1995 the Cherepovets plant was re-formed as the Severstal' (Northern Steel) Joint-Stock Company. In the mid-1990s, more than half of Russia's steel production came from the outmoded open-hearth furnace process; the more modern continuous casting method accounted for only 24 percent of output.

In the first half of the 1990s, the steel industry was hit especially hard by Russia's overall economic decline, which caused domestic consumption to drop sharply; by 1996 only 50 to 60 percent of capacity was in use. Between 1991 and 1994, output of rolled steel dropped from 55.1 million tons to 35.8 millions tons. Foreign sales were especially important as the only source of hard currency for some enterprises, accounting for as much as 60 percent of output in some cases. In 1995 Russian exports increased by 30 percent, making Russia the second largest exporter of ferrous metals in the world. The profitability of such sales dropped substantially between 1994 and 1996, however. Much of the steel industry's domestic business was payment in kind to input suppliers and railroads. Production costs are raised by the prices of such domestic inputs as coal and iron ore and transportation, which averaged at or above world levels in 1996. Another major cost to the ferrous metallurgy sector is social support programs for workers. Those costs in turn raise domestic metal prices above international levels.

Data as of July 1996

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